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IMPROVING THE KNOWN

INVENTING THE NEW
reinventing marketing in a time of business
model evolution
Larry Keeley

2012 CMO Summit

May 2012

IMPROVING THE KNOWN

INVENTING THE NEW

reinventing marketing in a time of business

model evolution

2012 CMO Summit

May 2012
Doblin is a member of Monitor Group
2011 Monitor Company Group LP
Confidential and not for distribution

Visualizing business models

Pop quiz!

1) Okay quick, visualize the model of your choice

2) Now visualize an architectural model
3) Now visualize a car model

4) Now visualize an airplane model

5) And now a business model

?
?

?
?

STORY #1: Reinventing PRODUCTS

Clever uses of connections reduces business friction

Elevation Dock
ElevationLabs

Surprising results
~ Raised $400k within a week from 5,000 backers
~ 13,500 people from 50 countries engaged within
one month
~ Sold 21,120 units on Kickstarter
~ Sold 20,000 more through Lunatik.com
Apple noticed. Offered to put watch bands in stores.
~ They offered their customary (poor) profit split
~ Wilson showed data that 76% of buyers were buying
the Nano iPod because of his band
~ Now Apple is selling 2x as many bands as forecast

5 types:

Pebble platform: innovation assessment

Pebble breaks all crowdfunding records outstripping its funding goal by 8,900%
and raising over $8M

Adventures in Funding
A timeline perspective

2 $100K

Hours

12 $500K

Hours

Pebble, a customizable app-driven platform

e-ink watch, a new layer over smartphones

1M
72 $2.5M
23 $8.9M
48

Hours

Hours

Days

Previous Kickstarter fund

raising record: $3M in 60 days.
4

STORY #2: Reinventing INDUSTRIES

STORY #2: Reinventing INDUSTRIES

STORY #2: Reinventing INDUSTRIES

On the strategic and tactical role of IEDs in insurgency

FROM START THROUGH OCT. 2010

CF MEMBERS KILLED BY IEDS

2,202
OVER

18,300 ARE WOUNDED

63% of all US deaths

ARE FROM IEDs

157,000 IEDs
HAVE EITHER DETONATED
OR BEEN DETECTED
A U.S. SOLDIER WAS

3 x likelier to be
killed or wounded
FROM AN IED THAN BY GUNFIRE

STORY #2: Reinventing INDUSTRIES

RF
TRIGGERS

INFRARED
TRIGGERS

COMMAND LINE &

VOIED

AMONIUM
NITRATE
BOMB

06.2003

EXPLOSIVELY
FORMED
PENETRATORS

04.2010
FIELD DETECTION
TRAINING

INCREASED ARMOR
PLATING

WARLOCK
RF-JAMMER
RHINO
C-IED

RHINO II
C-IED

MINE RESISTANT
ARMOR PROTECTED
VEHICLE (MRAP)

STORY #2: Reinventing INDUSTRIES

Investment asymmetrya key effect

10

ESTIMATED TOTAL IED

OPERATIONAL COSTS

$36 million

USA HAS SPENT OVER

$13 billion
ON SOLUTIONS
TO DEFEAT IEDs

$1

MORE BROADLY, FOR EVERY

SPENT BY
INSURGENTS IN THE WAR ON TERROR

US TAXPAYERS SPENT $6.6

million

STORY #3: Reinventing INVENTION

11

Apple innovates in profit model...

12

Innovations in how Apple operates match the sophistication of the

innovations in their devices and services

Apples profits have soared

but tax payments have
risen much more slowly

$3.3 billion

Cash paid for income taxes,

worldwide, in 2011

This graph originally appeared

in The New York Times

$34.2 billion

Profit before taxes,

worldwide, in 2011

Apple innovates in profit model...

13

Using revenue and tax manipulations legally available to digital tech

companies

DESIGN, PATENT,
MARKET
Cupertino, CA
(8.9% corp tax)

SALES REVENUES
Braeburn Capital
Reno, Nevada
(0% corp tax)

OVERSEAS
DISTRIBUTION
REINVENTED AS
COMMISSIONAIRES
High tax countries

NON-US SALES
REVENUES
iTunes SARL
Luxembourg
(low corp tax)

PATENT ROYALTIES
SALES & SERVICE
Double Irish:
Apple Operations Intl.,
Apple Sales Intl., Cork
(low corp tax)

ROUTING/ACCOUNTING
PROFITS
Dutch Sandwich:
Netherlands/Ireland/
British Virgin Islands
(low/no corp tax)

1Ten Types of

innovation
A significant research discovery radically alters how
we can diagnose or construct innovation effectively

Fundamental innovation discovery

15

The Ten Types of Innovation

16

How you create

complementary
products and services

How you differentiate

your product or
service offerings
16

The Ten Types of Innovation

17

How you develop and

create your offerings

How you join with

others to create value

How you
make money

How you align

your talent and assets

17

The Ten Types of Innovation

18

How you connect your

offerings with
customers and users

How you ensure and

enhance the value of
your offerings

How you foster

distinctive experiences

How you represent your

offerings and business

18

The Ten Types of Innovation

19

How you
make money
join with others to
create value
align your talent and assets

develop and create

your offerings
differentiate your product
or service offerings
create complementary
products and services
ensure and enhance
the value of your offerings
connect your offerings with
customers and users
represent your offerings
and business
foster distinctive experiences

Such as

Using the Ten Types effectively

20

The average innovator is too focused on simple, product-based innovations.

300

243

Average number of types

in use:

1.8 types
83
62
33

36

32
14

Source: Bibliometric search of Sysomos and Dialog databases, Monitor / Doblin analysis

22

27

41

20

Using the Ten Types effectively

21

Successful innovators look beyond product performance, and integrate twice as

many types of innovation.

200

179

Average number of types

in use:

3.6 types

103
82

74
58

N=214 companies, compiled from 2011 lists of most innovative

companies from Forbes, BusinessWeek, MIT Review, and FastCompany

79
60
47

44

43

21

Research: top performers use innovation differently

22

The top innovators outperform the S&P 500

Stock Price (indexed to 100)

5-Year Indexed Stock Price Returns of the Top Innovators vs. S&P 500

All top innovators

138 companies

S&P 500

2007

2008

2009

2010

2011
22

Partly because their innovations are more sophisticated

23

Integrating more types of innovation delivers superior financial

returns
5-Year Indexed Stock Price Returns of the Top Innovators vs. S&P 500

Stock Price (indexed to 100)

5+ Types of Innovation
45 companies
3-4 Types of Innovation
59 companies
1-2 Types of Innovation
34 companies
S&P 500

2007

2008

2009

2010

2011
23

2
Building better

business models
Learn to see mechanisms for business design as
choices: vital, malleable, and key to value creation

Using the Ten Types effectively

25

A better set of building blocks: Innovation tactics

Premium
Cost Leadership
Predictive
Analytics

Merger/Acquisition Organizational
Design
Consolidation
Talent Systems
Open Innovation

Flexible
Manufacturing

Feature
Aggregation

Standardization

Added
Functionality

Subscription

Secondary Markets Incentive Systems Localization

IT Integration
Process Efficiency
Supply Chain
Integration
Outsourcing
Process
Automation
Complementary
Crowdsourcing

Membership

Partnering

Metered Use

Forced Scarcity

Installed Base

Alliances

Switchboard

Franchising

Auction

Coopetition

User-Defined
Freemium

Flexible Pricing
Float
Financing
Microtransactions
Volume
Ad-Supported
Licensing
Multi-Level
Marketing

Social Network
Shared Back Office
Corporate
University
Decentralized
Management
Knowledge
Management

On-Demand
Production
Lean Production
Logistics Systems

Superior Product
Ease of Use
Engaging
Functionality
Environmental
Sensitivity
Safety

Strategic Design

Simplification

Intellectual
Property

Customization
Focus

Conservation
Styling

Cross Selling

Try Before You

Buy

Expansion

Co-branding

Flagship Store

Brand Leverage

Guarantee

Go Direct

Private Label

Simplification

Product Bundling

Loyalty Programs

Curation

Added Value

Non-Traditional
Channels

Brand Extension

Modular Systems

Novel Branding

Product/Service
Platforms

Concierge

Pop-up Presence

Experience
Enabling

Total Experience
Management

Indirect
Distribution

Component
Branding

Mastery

Transparency

Supplementary
Service

Cross-selling

Autonomy and
Authority

Extensions/
Plug-ins

Integrated
Offering

Superior Service
Personalized
Information
User
Communities/Sup
port Systems
Lease or Loan

On-Demand

Values Alignment
Certification

Process
Automation

Community and
Belonging
Personalization
Whimsy and
Personality

Using the Ten Types effectively

A better set of building blocks: Innovation tactics

104 unique innovation tactics spanning

across the Ten Types of Innovation
Definitions and examples for each
tactic
Simple protocols for how to use the
cards for innovation activities

26

Profit models: the full taxonomy

27

Select Profit models: in detail

28

Risk Sharing helps align customers and users interests so everyone works to
achieve performance incentives

Problem: Johnson Controls (JCI) had difficulty

aligning incentives with building owners who
needed to achieve long-term efficiency savings,
but struggled with the significant capital
requirements and uncertain outcomes of such
infrastructure upgrades

Approach: JCI offered guaranteed lifecycle savings

and upside-sharing models on infrastructure
upgrades to share both the burden and upside of
risk with customers
If Johnson fails to achieve the guaranteed
savings, it pays the difference to the customer
if additional savings are achieved, they are split
between Johnson and the client
To help achieve the guaranteed outcomes, JCI
often keeps service staff on-site at installations
to ensure equipment is performing

Threadless: the fashion company with no fashion skills

4 types:

29

FarmVille: innovation assessment

Founded in 2007, as of 2011

$445 million in revenue

$9.7 billion in market cap
85+ million members
Outnumbered real farmers in the U.S.
79 to 1

In-game sales of $45 million

in virtual goods sold to FarmVille farmers
Sweet Potato seed packets netted

$854,000 in three weeks

8 types:

30

FarmVille: innovation assessment

31

Hyundai innovation assessment

Hyundai found itself in a challenging sales environment

32

Hyundai innovation assessment

and fought back by tuning into customers emotional state

3 types:

33

Zipcar: innovation assessment

7 types:

34

Hilti: innovation assessment

6 types:

35

Hilti: innovation assessment

36

Identify the aspects of the offering that are undervalued and highly valued
by customers
* savings/costs per worker

Differentiated Value
Your unique value delivered
minus that of your competitors

Reference Value
Price of best alternative
Source of business
model innovation

Eliminate maintenance costs

Saving $69.19

Limited to Hilti-specific
replacement blades
Cost of $324.40

Eliminate tool replacement cost

Saving $341.00
Minimizing downtime
Saving $1,726.31

Total Economic
Value = $3,886.00

Cost of buying a tool fleet

Cost of $2,075.89

Hiltis lease
fees = $2,304.24
Monthly leasing
model reduces
total management
cost by 45.3%

M-PESA: Innovation assessment

Which of these things is not like the other?

8
types:

37

Innovating around climactic uncertainty

Analytics, modeling, and rapid service for the "Age of Precision" Agriculture

5 types:

38

Dynamic auctions bring power to producers

Creating new levels of efficiency and profitability

4 types:

39

Geisinger Provencare: innovation assessment

Geisinger offers pricing and outcomes guarantees for complex cardio care

7 types:

40

3Seeing How

Industries
Transform
Platforms accelerate value migration

Ten types of innovation: sector transformation patterns

42

Platform-centric
innovation
Reinvent or recombine
capabilities to deliver value

Business model-centric
innovation
Configure assets differently
to deliver value

Experience-centric
innovation
Engage customers differently
to deliver value

Amazon evolves over time

Learning from
1. The worlds largest online retailer
2. Market capitalization of ~$70Bn
3. Sells roughly three of every four e-books almost
twice the number of hardcover books they sell
4. And yet books and other media (e.g., DVDs, CDs)
comprise only half of its $25Bn in revenue

43

Evolution of the bookstore

1994

44

Evolution of the bookstore

2003

45

Evolution of the bookstore

2007

46

Convergences in efficiency: consumer behaviors speed evolution

47

Consumers drive convergences through their adaptations of products and

adoption of new behaviors

SIMPLE

SPECTRUM OF GREEN BEHAVIORS

SOPHISTICATED

Convergences in efficiency: Energy usage behavior change

A variety of actions, balanced across whats desirable, viable and feasible make
Montreals Bixi bike sharing program popular and successful

48

Convergences in efficiency: Energy usage behavior change

49

BetterPlace is building systems to bridge transportation contexts and drive

cleaner, more efficient use of vehicles

Book a train ticket

and a car in one
interaction

Grab your
reserved car

Technology partner
Take your green

wheels where you

need to go

Battery swap,
if a faster recharge
is needed

Select Profit models: in detail

50

Metered Use model helps induce faster behavioral change

Better Places business model enables EV

drivers to pay for electricity on a per
mile basis
Subscription

model similar to service plans of

telecom companies
Customers sign up for a set number of
monthly miles
EVs are leased out or provided for free,
based on the term of plan

Swapping

stations are parallel to gas stations,

enabling flexible mobility and convenience

Convergences in efficiency: a shared experimental prototype

51

Masdar zero carbon city, research hub, laboratory & proving ground

All photos and drawing from NYTimes

THE BUSINESS MODEL CONSTRUCTION CHECKLIST

52

The process of designing a new business model is similar to designing the

product or service it is meant to support...

Begin with insight into how customers perceive value

Discover your customers deep economic context, plus their unmet needs

Think differently and reframe possibilities to capture the value you create
in fresh, fair, surprising ways
Find something stupid at the core then build different value capture tactics & pricing models

Build a specific narrative and prototype the future business to show how it
would work, end to end
Evaluate the concept with customers, partners and colleagues and find ways to simplify

Launch your offering in ways designed to foster trial, reduce user friction,
and establish rapid growth momentum
Make it easy to try, compelling to use, and do something that seems magical

Evolve the services, systems, and business model over time

Expect and anticipate that the business model will change as your platform becomes more
pervasive, more of a defacto standard, and attracts second and third order innovations

53

In a time of intense change:

Work on big problems with great teams
Find or build low friction methods
Do not wait for others to help
Physically go to front lines
Combine expertise

54

Go get em!
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